Page menu

Saturday, March 7, 2020

Market Update Weekly Wrap Up 3/7/2020 - This Is What A Bear Market Looks Like

Weakness continues, but the selling momentum has slowed, and that points to a bottom coming in, but as long as the $VIX remains at these levels, we're probably not off to the races. Bottoming is a process, which takes time.

Financials made a fresh low, on Friday, and European stocks as well... The $DAX continues to be one of my best indicators, for US markets, and I'm willing to provide you with regular updates on the DAX for only $99 per month. I'll even throw in $VIX targets, so you know where the next short squeeze is going to occur. Don't trust your emotions, trust the $VIX! 

No matter what you think about coronavirus, there can be no doubt that the fear in global markets is real, but the fear of missing the next big run is going to return at some point, or the fear of remaining short into another 5% rally, as we saw ahead of the The Federal Reserve's emergency rate cut this week. It's pretty obvious the that news wasn't leaked, 2 days ahead of time. The financial networks were even reporting that markets were expecting it. Goldman Sachs warned just ahead of this mini-crash, who do you think was covering their short position, ahead of the news? See:

26 Goldman Sachs Alumni Who Run the World (GS) Investopedia 

Most Important Headline of the week - from a trading perspective - was that there was a massive short-squeeze in the $VIX Friday afternoon. This resulted in a $VIX high we haven't seen in the financial crisis of  '07-08. See:
"Someone Big Was Utterly Blown The F**k Out": Here's The Reason Behind Today's Unprecedented VIX Move"  

This little false breakout on the $VIX was unexpected, and the only thing that kept me from panicking, was the lack of selling pressure. I'm using thinkorswim religiously now, and running the program on a 30" ultra-widescreen, so I see everything. The $SPX held it's own, as the $VIX continued to breakout, and this proves the market is a little more resilient than many people may think.

Here's my new setup:

There's been some talk about the lack of liquidity in futures markets, but at least the market can catch a bid, even on a Friday. See:

Thin Liquidity in Stock Futures Raises Risk of More Wild Market Moves wsj

Of course once the $VIX shorts got blown out of the water, the $VIX plummeted some 15 points in the final 1/2 hour of trading, and this resulted in massive (retail) short covering, going into the weekend. This is what a bear market looks like, and it's reminiscent of trading during the crash of 08.

I think this was the defining capitulation moment, and I'm very bullish, and especially when I see the amount mass hysteria exhibited on Twitter.

It was just a couple weeks ago, when I warned the bulls:

The original tweet has since been removed, but I can tell you it was a great contrarian indicator.

Now I see the bears mocking the bulls, in the same way, and that's a very bullish contrarian indicator.
"Don't follow the herd", unfollow the herd.

The selling of the past 2 weeks, as fast as it was, was also well organized, and if you've been following my charts closely on twitter, I've shown you where the bids were lowered in order to take out support, and with liquidity low, it makes it even easier for the powers that to manipulate markets. On Friday we saw the market gap down, just below support. Looked like an engineered shakeout.

We haven't seen the baby being thrown out with the bathwater. We haven't seen the high-fliers sell off, and several sectors have been spared, including casino stocks. Most the fear seems to me in bond markets, airlines, and oil. 

 It's way too soon to call this a correction, let alone a crash. Don't fall into the bear trap!

I'm bullish for the next week or 2, and looking for alternative trades in Energy. I want to be short treasuries, cryptos, gold, miners, and anything else that looks like a safe place. Money also has to come out of utilities, and healthcare We need to see more of a real risk on environment. Not just speculation, but a nice Boeing rally, and I'm thinking it's time for energy to join the party. Energy is the most hated sector, and it was down more than any other sector on this route. I suppose we will see money rush back into tech stocks, and I like Biotech, but the real fear is in Energy names. 

Chart of the week: XOP S&P Oil & Gas Exploration & Production. Sound pretty diversified, but I haven't checked the components. What I'm interested in is the way everything lines up perfectly, and if this was a 30 year chart of the $SPX, it would look like the 400 level. For disclosure I don't own this fund.


Here's the 20 year $SPX pattern, mentioned above, and I think there's a good chance this plays out in another year, at the rate we're going. 

Yes the coronavirus pandemic is serious, but that's not going to keep money from being put to work, and in a wave 1, bearishness sentiment peaks out rather quickly. Dip buyers always come in in wave 2, so in the short term, it doesn't matter to me if this is a continuing bull market, or a bear market. 

1000 point moves on the DOW are the new normal - above $VIX 30 - so be careful out there!
When you see the buyers return, it should be obvious to everyone.

As bearish as the above long term chart looks, compare that to the very bullish LT NASDAQ chart below.

That's all the time I have on this Saturday.

Follow my on Twitter page in the morning for the mini-blog, and real time updates throughout the day, and follow the public charts area, for some of the best charts on the internet, and watch me chart the opening bell in real time. You're continued support is appreciated.

No comments:

Post a Comment